STEPHAN F. ROETHKE; KAREN M. KAELA ROETHKE; AND STEPHANIE ROETHKE V. LARRY SANGER
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RENDERED: DECEMBER 20,200l
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2000-SC-0202-DG
STEPHAN F. ROETHKE; KAREN M.
KAELA ROETHKE; AND
ON REVIEW FROM COURT OF APPEALS
97-CA-2954-MR AND 97-CA-2977-MR
JEFFERSON CIRCUIT COURT NO. 93-Cl-6373
V.
LARRY SANGER
APPELLEE
OPINION OF THE COURT BY JUSTICE COOPER
AFFIRMING
A Jefferson Circuit Court jury awarded Appellants Stephan F. Roethke, Karen M.
Roethke, Kaela Roethke and Stephanie Roethke judgments against Appellee Larry
Sanger in the total sum of $2,659,560.40. The Court of Appeals reversed, holding that
the trial judge erred in overruling Sanger’s motion for a directed verdict. We granted
discretionary review and now affirm the Court of Appeals. In doing so, we will address
the three theories of agency advanced in support of vicarious liability in this case: (1)
partnership; (2) ostensible agency; and (3) joint enterprise. But first, the facts.
I. FACTS.
Appellant Stephan Roethke was the owner and president of D & B Roofing
Corporation. His wife, Appellant Karen Roethke, was the secretary/treasurer. D & B
was engaged in the business of repairing and installing roofs on commercial buildings.
In addition to the Roethkes, D & B employed a sales representative, an operations
manager, a construction foreman, and 14 - 15 union roofers. Although its corporate
headquarters was in Louisville, D & B bid, accepted and performed roofing jobs
throughout the Commonwealth of Kentucky. In the fall of 1992, Stephan Roethke
negotiated a contract for D & B to remove a 16,000 square foot roof from an industrial
plant building owned by Gamble Brothers/Masonite Corporation in Monticello,
Kentucky, and replace it with a standing seam metal roof. The contract price was
$46,784.00. D & B ‘s construction foreman, Jack Taylor, was supervising another job in
Radcliff,
Kentucky, so Roethke hired Chris Sanger, then age twenty-three, to supervise
D & B’s employees in the performance of the Gamble Brothers’ job.
Chris Sanger was not in the roofing business and had no employees. He owned
a IO-ton RO Stinger hydraulic crane mounted on a 1975 Ford L-9000 tractor truck that
he used in an unincorporated crane service business known as “Sanger Crane
Service.” He charged $55.00 per hour to operate his crane on lifting jobs for
construction contractors who did not own cranes of their own.
Although Sanger had
helped build some metal garages when he lived in Pennsylvania, he had never
participated in the installation of a roof of this size or type. Roethke knew that, so he
gave Sanger a booklet published by the roof supplier, Metal Sales Company, that
described the proper method of installation of a standing seam metal roof. D & B paid
Chris Sanger a salary of $250.00 per day to supervise D & B’s employees and $100.00
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per day for the use of his crane, and reimbursed all of his travel and living expenses
related to the Gamble Brothers job. The crane was used only about twenty minutes per
day to lower old roof panels off the roof and hoist new panels up to the roof. Roethke
testified that he agreed to the $100.00 per day payment because Sanger needed the
money to make his payments on the crane. All payments of salary, crane work, and
expenses were made by checks issued by D & 6 payable to “Chris Sanger.” No checks
were issued payable to “Sanger Crane Service.” The work on the Gamble Brothers job
commenced on December 17, 1992, and concluded in mid-January 1993.
At some point prior to the commencement of the Gamble Brothers job, Roethke,
on behalf of D & B, offered Sanger a full-time job as a construction supervisor at a
salary of $50,000.00 per year, plus expenses. Sanger testified that he accepted the
offer during a telephone conversation with Roethke on December 27, 1992, and that
Roethke said he would visit the Monticello job site the next day to finalize the
agreement. Roethke admitted he offered the position of permanent employment to
Sanger and that Sanger accepted the offer. Roethke, however, maintained that the
agreement was never finalized because the two could not agree on what to do with
Sanger’s crane. On December 28, 1992, Roethke and his Lexington sales
representative, Mike Wheeler, visited the Gamble Brothers job site. Chris Sanger was
working on the roof with other D & B employees. Roethke and Wheeler climbed a
ladder to the roof, and Sanger testified at trial that Roethke said to Wheeler: “Meet
Chris Sanger, the new addition to our company.”
Both the old and the new roof consisted of metal panels. The panels of the old
roof were fastened together by metal screws bored through the top of the panels. The
panels of the new standing seam roof were fastened together by clips attached
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underneath the panels. So as not to leave the building completely uncovered, the
technique used for the removal and installation was to start at one end of the building
and work to the other end, removing the old panels and replacing them with the new
panels as the work progressed. There would always be a narrow open space where old
panels had been removed, but new panels had not yet been installed, and where the
roof insulation was, thus, exposed.
Wheeler had a camera and began taking photographs of the work in progress.
Plaintiffs trial exhibit No. 1 is a photograph that shows Stephan Roethke standing on
the old section of the roof within a few feet of the exposed insulation, apparently talking
to Macy Williamson, a D & B employee, who was on his knees on the other side of the
exposed section, clipping a new panel to the new section of the roof. The narrow
section of exposed insulation is clearly visible between Roethke and Williamson. The
photograph also shows Chris Sanger working on the new section behind Williamson
with his back to Roethke. As Roethke walked forward toward Williamson, he stepped
off the existing portion of the roof onto the exposed insulation and fell through the
insulation forty feet to the floor of the building, suffering catastrophic injuries resulting in
quadriplegia.
In December 1993, Stephan Roethke and Karen Roethke filed this action for
damages (Stephan for his personal injuries, Karen for her loss of consortium) against
their own corporation/employer, D & B Roofing, claiming that Stephan’s injuries were
caused by D & B’s negligent installation of the roof. (The Roethkes had rejected
coverage under the Workers’ Compensation Act. KRS 342.395.) They also sued Chris
Sanger, claiming that he negligently supervised the installation of the roof, and “Sanger
Crane Service,” claiming that it, as Chris Sanger’s employer, was vicariously liable for
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Sanger’s negligence. In July 1997, the Roethkes’ two minor children, Appellants Kaela
and Stephanie Roethke, intervened to also assert claims for loss of consortium.
Giuliani v. Guiler, Ky., 951 S.W.2d
318 (1997). Judgments were ultimately entered in
favor of Stephan Roethke in the sum of $1,869,560.47,
sum of $780,000.00,
in favor of Karen Roethke in the
and in favor of the Roethke children in the sum of $10,000.00.
Those judgments, however, were not entered against D & B Roofing, Chris Sanger, or
“Sanger Crane Service,” all of whom had been released prior to trial in unsuccessful
attempts by the Roethkes to recover by assignment the proceeds of various insurance
policies. Instead, the judgments were entered against Chris Sanger’s father, Appellee
Larry Sanger, who had never discussed the details of the Monticello job with either
Roethke or Chris Sanger, had never visited the Monticello job site, and had never
received any payment for work performed on that job. The trial court’s theory of Larry
Sanger’s liability was that Larry and Chris Sanger were either partners or “implied
partners” in the crane service business, and thus, Larry was vicariously liable for Chris’s
negligent performance of the roof installation job.
Prior to moving to Jeffersonville, Indiana, in 1989, Larry Sanger lived in Lebanon,
Pennsylvania, and was engaged in the business of erecting small steel buildings under
the certified assumed name of “Sanger Construction Company.” Cf. KRS 365.015.
However, he had never erected a building with a standing seam metal roof. He owned
two cranes that he used both in his construction business and as a private contractor of
crane service work for other construction companies that did not own their own cranes.
To advertise this sideline business, he painted the words “Sanger Crane Service” on
the sides of both cranes. He did not obtain an assumed name certificate for his crane
service business. His son, Chris Sanger, worked for him during summers while in high
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school and for a year after graduation. Chris participated in the construction of three
small metal buildings and learned to operate the cranes. When Larry Sanger and his
wife moved to Indiana, Chris remained in Pennsylvania. Larry took the larger of his two
cranes, a 15ton hydraulic crane mounted on a 1981 Ford tractor truck, to Indiana. He
sold Chris his smaller crane, the 1 O-ton RO Stinger mounted on the 1975 Ford truck, for
$35,000.00. Defendant’s trial exhibit No. 3 is a financing statement proving that the
Farmers Trust Company of Lebanon, Pennsylvania, financed Chris’s purchase of an
“RO Stinger TC120 Crane, Serial No. 351.” The loan was cosigned by one of Larry’s
former crane service customers who intended to continue doing business with Chris.
Chris kept his father’s Pennsylvania customers and continued to perform crane service
work as “Sanger Crane Service.”
Upon moving to Indiana, Larry Sanger opened a bank account under the name
“Sanger Construction and Crane Service.” He did not resume his former business of
constructing metal buildings. Instead, he operated his crane service business, which he
continued to call “Sanger Crane Service,” on a full-time basis. His home at 1931 Utica
Pike in Jeffersonville was also his office, and customers who needed crane service
would contact him at his home telephone number. In April 1992, Chris Sanger moved
from Pennsylvania to Indiana and took up residence at his parents’ home in
Jeffersonville. He brought with him the IO-ton RO Stinger crane mounted on the 1975
Ford truck, and Larry agreed to give Chris some of his crane service business. They
discussed the possibility of a partnership, but were unable to agree on terms. They
finally agreed to operate separately with each keeping the money he earned with his
own crane.
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Chris opened a bank account under the name of “Chris Sanger or Sanger Crane
Service.” Thereafter, when a call came to the Sanger home/office for crane service,
Larry would decide who would get the job. Either way, the charge was $55.00 per hour.
Invoices were sent to customers under the name “Sanger Crane Service” with
remittance payable to “Sanger Crane Service, 1931 Utica Pike, Jeffersonville, Indiana.”
Upon receipt of a remittance, the check would be deposited in the bank account of the
one who had performed the work. If a customer remitted payment for several invoices
with one check, and if some of those invoices were for work performed by Larry and
others for work performed by Chris, the check would be deposited in Larry’s bank
account. Larry would then write a check to Chris for the sum of the invoices that
represented work performed by Chris. Plaintiffs exhibit no. 14 contains copies of
checks written on Larry Sanger’s account payable to Chris Sanger for “crane work.”
For tax purposes, Larry claimed all deposits to his account as business income and
deducted amounts paid to Chris as business expenses.
D & B Roofing was one of Sanger Crane Service’s regular customers. When
D & B needed crane service, Roethke would call the Sanger residence and request a
crane. Chris Sanger and Stephan Roethke became close friends and Larry usually
gave the D & B jobs to Chris. An invoice would be sent to D & B under the name
“Sanger Crane Service” and Roethke would remit a check payable to “Sanger Crane
Service.” D & B often paid several invoices with one check. If the check was for work
performed by both Sangers, Larry would deposit the check in his account and write
Chris a check in the amount representing his portion of the work.
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II. PARTNERSHIP.
Presumably, the origin of the trial judge‘s theory of “implied partnership” was this
quote from Guthrie v. Foster, 256 Ky. 753, 76 S.W.2d 927 (1934):
The question of the effect of holding out as partners arises only in dealing
with third persons, and cannot be raised between the parties themselves,
for everyone is presumed to know who are his associates in business.
Persons may, therefore, be made liable as partners as far as third
persons are concerned by assertions, admissions and acts tending to
show that they are such, although such evidence might be insufficient to
prove a partnership as between the parties themselves.
Id., 76 S.W.2d at 929 (quoting 20 R.C.L. 1067, 1068).
That case was a dispute between one purported partner and the heirs of another
over the proceeds of the deceased purported partner’s life insurance policy; thus, the
quoted language was dicta, and the issue of potential liability to third parties was not
further discussed. Although there are common law cases relying on circumstantial
evidence to find the existence of an actual partnership for the purpose of determining
the rights and liabilities of the alleged partners with respect to each other, u, Graf v.
Woodruff, 244 Ky. 557, 51 S.W.2d 908 (1932) no Kentucky case has applied a theory
of “implied partnership” to create vicarious tort liability in favor of a third party.
However, regardless of any common law theories, the existence or nonexistence
of a partnership in 1992 between Larry and Chris Sanger was governed by the Uniform
Partnership Act (UPA), promulgated by the Conference of Commissioners on Uniform
State Laws in 1914’ and adopted as the law of Kentucky in 1954.* Thus, the facts of
’ 6 Uniform Laws Annotated, Uniform Partnership Act 7 (West 1969).
* 1954 Ky. Acts, ch. 38. To date, Kentucky has not adopted the Revised
Uniform Partnership Act (RUPA), finalized by the National Conference of
Commissioners on Uniform State Laws in 1996. R. Hillman, A. Vestal and D. Weidner,
The Revised Uniform Partnership Act 3 (West 2000).
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this case are governed, not by pre-existing common law cases, but by the following
statutory provisions:
KRS 362.165 provides that the rule that statutes in derogation of the common
law are to be strictly construed has no application to the Uniform Partnership Act. It
also provides that the laws of estoppel and agency apply to the Act.
KRS 362.175 defines a partnership as “an association of two (2) or more
persons to carry on as co-owners a business for profit.”
KRS 362.180 is entitled “Rules for determining the existence of a partnership”
and provides in pertinent part:
(1)
(2)
(3)
(4)
Except as orovided bv KRS 362.225 foartner by estoppel] oersons
who are not eartners as to each other are not partners as to third
persons.
Joint tenancy, tenancy in common, tenancy by the entireties, joint
property, common property, or part ownership does not of itself
establish a partnership, whether such co-owners do or do not share
any profits made by the use of the property.
The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns
are derived.
The receipt by a person of a share of the profits of a business is
prima facie evidence that he is a partner in the business, but no
such inference shall be drawn if such profits were received in
payment:
(a)
As a debt by installments or otherwise;
(b)
As wages of an employee or rent to a landlord;
. . . (Emphasis added.)
KRS 362.190(l) provides:
Subject to the limitations set forth in KRS 362.220 [limited partnerships],
every partner shall be an agent of the partnership for the ouroose of its
business, and the act of every partner, including the execution in the
partnership name of any instrument, for apparently carrying on in the
usual wav the business of the oartnershio of which he is a member shall
bind the partnership, unless the partner so acting has in fact no authority
to act for the partnership in the particular matter, and the person with
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whom he is dealina has knowledae of the fact he has no authority.
(Emphasis added.)
KRS 362.210 provides:
When, by any wrongful act or omission of any partner acting in the
ordinarv course of the business of the oartnershir, or with the authoritv of
his co-partners, loss or injury is caused to any person, not being a partner
in the partnership, or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting to act.
(Emphasis added.)
KRS 362.220(1)(a) provides that all partners are jointly and severally liable for
everything chargeable to the partnership under KRS 362.210.
KRS 362.225 is entitled “Partner by estoppel” and provides:
(1)
When a person, by words spoken or written or by conduct,
represents himself, or consents to another representing him to
anyone, as a partner in an existing partnership . . . he is liable to
any such person to whom such representation has been made,
who has, on the faith of such reoresentation given credit to the
actual or apparent partnership, and if he has made such
representation or consented to its being made in a public manner
he is liable to such person whether, the representation has or has
not been made or communicated to such person so giving credit by
or with the knowledge of the apparent partner making the
representation or consenting to its being made;
When a partnership liability results, he is liable as though he
(a)
were an actual member of the partnership.
(2)
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual
partners, he is an aaent of the persons consenting to such
representation to bind them to the same extent and in the same
manner as though he were a partner in fact, with respect to
persons who relv uoon the representation. . . . (Emphasis added.)
A. “INlot partners as to each other.” KRS 362.180(l).
There is no evidence whatsoever in this case to support a conclusion that the
Sangers were K R partners3in the crane service business.
actual S
6 2 . 1 8 0 ,
s
u
p
r
a
.
They did not share profits. They were not co-owners of any property. Each owned his
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own equipment, and each kept the money that he separately earned. Appellants’
assertion that Larry Sanger depreciated Chris Sanger’s crane on his income tax return
is patently incorrect. Larry’s tax return (Defendant’s exhibit no. 4) claims depreciation
for a 1969 White crane truck, a 1981 Ford crane truck, and a 1985 Ford 8000 boom
truck. (Presumably, the depreciation for each vehicle included not only the truck but the
crane affixed thereto.) The depreciation schedule reflects that the 1985 Ford truck was
purchased on September I, 1993, nine months after Roethke’s accident. The
depreciation schedule does not include a 1975 Ford crane truck or an RO Stinger
crane.
On December 16, 1992, the day before work on the Gamble Brothers job began,
D & B gave Chris Sanger a $300.00 check for advanced expenses. The Roethkes
make much ado of the fact that Chris subsequently endorsed this check over to Larry
who deposited it in his (Larry’s) bank account. Larry surmised at trial that Chris gave
him the check as payment for some fuel. Chris surmised that he gave the check to
Larry either as a rent payment or to repay a loan. KRS 362.180(4)(a), (b), supra.
Regardless, under no interpretation could Larry’s ultimate possession of a check for
advanced expenses be regarded as a “share of the profits” from the Gamble Brothers
job. See KRS 362.180(3)
and (4), supra. Not one cent of the approximately
$15,000.00 paid to Chris Sanger by D & B for work performed on the Gamble Brothers
job was ever paid to Larry Sanger, directly or indirectly.
B. Partner by estoppel. KRS 362.225.
Since the Sangers were not partners as to each other, they could only be
partners as to the Roethkes if they were partners by estoppel as defined in KRS
362.225, supra. See KRS 362.180(l), supra. The latter statute is a verbatim adoption
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of section 7 of the UPA and represents a repudiation of the ancient doctrine of
“partnership as to third persons” under which courts formerly implied the existence of
partnerships in order to spread liability for losses to third parties in cases where no
partnership would otherwise be found. R. Hillman, A. Vestal and D. Weidner, The
Revised Uniform Partnership Act, supra, note 2, 5 308, Comment 1, at 160 (citing
Martin v. Pevton, 158 N.E. 77, 78 (N.Y. 1927): “Much ancient learning as to partnership
is obsolete. Today only those who are partners between themselves may be charged
for partnership debts by others.“).
The evidence as to how the Sangers represented their crane service business to
the public, including the Roethkes, would support a finding of partnership by estoppel
with respect to that business, assuming proof of reliance. KRS 362.225(l), supra.
Both Sangers used the same business address and telephone number and operated
under the same fictitious name of “Sanger Crane Service.” Their invoices were
identical and their customers were directed to remit all payments to the fictitious name
listed on the invoices. KRS 362.225 is a verbatim adoption of UPA 5 16, 6 Uniform
Laws Annotated, supra, note 1, at 195, et. seq., and there is authority for the
proposition that a partnership by estoppel creates only contractual liability, not tort
liability. m, 134 S.E.2d 713, 716-17 (W.Va. 1964). That issue has never
been addressed in Kentucky, though the language of KRS 362.225 seems directed
more at contractual than at tort liability, a: “[H]e is liable to any such person to whom
such representation has been made, who has on the faith of such representation aiven
credit to the actual or apparent partnership . . . .” KRS 362.225(l) (emphasis added).
That issue, however, need not be addressed here because Chris Sanger did not cause
Stephan Roethke’s injuries while acting in “the ordinary course of the” crane service
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business, KRS 362.210, supra, and the Roethkes did not hire Chris Sanger “on the
faith of such representation” or in reliance on Larry Sanger being his partner. KRS
362.225(l), (2).
C. “Ordinarv course of the business” or “with the authority of his copartners.”
KRS 362.210.
The fact that two persons are partners in a particular business does not mean
that each is vicariously liable for the negligent acts of the other committed outside “the
ordinary course of’ that business. “Where the partner whose negligence caused
damage to a third party acted outside the purview of the partnership business . . . he
alone is responsible.” 59A Am.Jur.2d, Partnership, $j 653 (1987). For example, if a
member of a law partnership privately owned a farm, his law partners would not be
vicariously liable for his negligent operation of a tractor while engaged in farming. And
if the lawyer/farmer had a partner in his farm operation, the farm partner would not be
vicariously liable for legal malpractice committed by the lawyer in the course of his law
practice. Vicarious liability extends only to negligent acts of an agent committed in the
course and scope of the principal’s business. And the test is the same whether the
agency relationship is one of partnership, principal/agent, or master/servant. KRS
362.210, supra; Wolford v. Scott Nickels Bus Co., Ky., 257 S.W.2d 594, 595 (1953)
(principal/agent); Hines v. Wall, 194 Ky. 379, 239 S.W. 451, 453 (1922)
(master/servant).
In Osborne v. Pavne, Ky., 31 S.W.3d 911 (2000), we held that a Roman Catholic
diocese was not vicariously liable for sexual misconduct committed by a parish priest
during the performance of his admitted duties as a marriage counselor.
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The critical analysis is whether the employee or agent was acting
within the scope of his employment at the time of his tortious act. Wood
v. Southeastern Grevhound Lines, 302 Ky. 110, 194 S.W.2d 81 (1946),
provides that for it to be within the scope of its (sic) employment, the
conduct must be of the same general nature as that authorized or
incidental to the conduct authorized. A principal is not liable under the
doctrine of respondeat superior unless the intentional wrongs of the agent
were calculated to advance the cause of the principal or were appropriate
to the normal scope of the operator’s employment. Henson v. B.F.
Goodrich Co, Inc., Ky., 349 S.W.2d 680 (1961). . . . It is beyond question
that Osborne was not advancing any cause of the diocese or engaging in
behavior appropriate to the normal scope of his employment.
Id. at 915.
The business of “Sanger Crane Service” was crane service, not roof installation.
Roethke knew that. KRS 362.190(l), supra. When he needed crane service, Roethke
hired “Sanger Crane Service” and remitted payment directly to “Sanger Crane Service”
with checks payable to “Sanger Crane Service.” But when he needed a construction
foreman to supervise his own employees in the installation of a standing seam metal
roof, he did not hire “Sanger Crane Service;” he hired Chris Sanger. He received no
invoices from “Sanger Crane Service” and did not remit any payments to “Sanger
Crane Service” for Chris Sanger’s work. Chris submitted his expense claims on tablet
paper, not a “Sanger Crane Service” invoice, and all payments for expenses, salary and
crane use were made by checks payable to “Chris Sanger,” not “Sanger Crane
Service.” Nor was Chris Sanger paid the hourly rate normally charged for work
performed by “Sanger Crane Service.” He was paid $250.00 per day to supervise the
roof installation and $100.00 per day for the use of his crane.
Neither Larry Sanger nor
“Sanger Crane Service” was paid anything at all for work performed by Chris Sanger on
the Gamble Brothers job.
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Stephan Roethke was not injured by Chris Sanger’s negligent operation of his
crane, and the opening through which Roethke fell was not created by the operation of
the crane. Roethke’s claim of negligence was that the opening should have been
covered or barricaded, or that signs should have been erected to warn unwary persons
on the roof. The jury was instructed only that Chris Sanger had a duty “to use ordinary
care to provide a safe work place for people on the roof,” a duty unrelated to “the
ordinary course of the” crane service business. KRS 362.210, supra.
If a partner’s wrongful act is not committed during the ordinary course of the
business of the partnership, a co-partner is liable only if he consented to or authorized
the act. Id.; Ellis v. Mihelis, 60 Cal.2d 206, 217 (Cal. 1963). Larry Sanger was never in
Monticello and never discussed the details of the Gamble Brothers job with either
Stephan Roethke or Chris Sanger. There is no evidence that he consented to or
authorized the method by which the old roof was removed and the new roof installed, or
even that he, himself, knew how to install a standing seam metal roof.
Nor could he
have had any knowledge of any warnings or lack thereof provided to Roethke and
other persons on the roof at the time of the accident. Appellants’ assertion that Larry
Sanger “fully discussed the details of the Monticello job with both Steve Roethke and
Chris before deciding to send Chris [to do the job]” is unsupported by the evidence at
trial. Stephan Roethke testified that the reason he did not offer the Gamble Brothers
job to Larry Sanger was because he knew Larry did not have time to do it and that his
only conversation with Larry about the job was a telephone call in which he asked Larry
if it would be all right for Chris to take the job because “I wanted him to have a clear
understanding that his son would be out of town for some time.” Chris Sanger testified
that he asked Larry whether he would object to his (Chris’s) prolonged absence from
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the crane service business and whether he should accept Roethke’s offer of permanent
employment; and that Larry advised him to work with Roethke on the Monticello job and
see how it went, “to see if he thought he [Roethke] would be a good person to work for.”
Larry testified that he did not object to Chris accepting employment with Roethke
because Roethke was offering Chris more money than he could make in the crane
service business and “I would be rid of him.” (!) That is a far cry from “fully discuss[ing]
the details of the Monticello job with both Steve Roethke and Chris Sanger” and
“deciding to send Chris” to do the job. There was no evidence at trial to support a
conclusion that Chris Sanger was acting “with the authority of’ Larry Sanger in the
performance of the Gamble Brothers job.
D. “With respect to oersons who relv upon the representation.” KRS
362.225(2).
Finally, no partnership by estoppel in favor of the Roethkes could have occurred
with respect to the Gamble Brothers job because an essential element of any estoppel
is reliance, u, Gailor v. Alsabi, Ky., 990 S.W.2d 597, 604 (1999), and a partnership by
estoppel, as defined by UPA § 16 (KRS 362.225) requires reliance by the person
claiming vicarious liability. McBrietv v. PhilliDs, 26 A.2d 400, 405 (Md. 1942); &&!
Premium Budaet Plan Corp. v. Nat’1 Fire Ins. Co., 234 A.2d 683, 729-30 (N.J. Super.
Law Div. 1967); Pruitt v. Fettv, supra; Wisconsin Tel. Co. v. Lehmann, 80 N.W.2d 267,
270 (WIS. 1957). Even the trial judge remarked during the instruction conference that if
reliance was a required element of “implied partnership,” Larry Sanger would be entitled
to a directed verdict. In that respect, he was correct; but he was incorrect in his
conclusion that Kentucky law, presumably Guthrie v. Foster, supra, does not require
reliance as an element of implied partnership. Guthrie did not mention reliance
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because it was not a case in which a third party was attempting to hold an alleged
partner vicariously liable. Regardless, Guthrie was superseded by the enactment of
KRS 362225(Z), supra, which explicitly requires reliance.
Both Roethkes testified that they relied solely on Chris Sanger’s ability to get the
job done and did not expect Larry Sanger to be involved in the job in any way. Stephan
Roethke testified that he did not ask Larry Sanger to participate in the job and did not
expect him to provide any expertise, but “relied entirely on Chris.” Neither of the
Roethkes testified that either Larry or Chris Sanger did or said anything to represent
that Chris was supervising the Gamble Brothers job as a part of the business of
“Sanger Crane Service.” Stephan Roethke testified he knew the job “was not
something Chris was used to doing.” And he obviously knew the crane belonged to
Chris, not Larry, because he testified that he and Chris had already discussed what to
do with the crane if Chris accepted the offer of permanent employment. Finally, both
Roethkes knew that, with respect to the Gamble Brothers job, Chris Sanger was an
employee of D & B Roofing, not Sanger Crane Service. Long before the Roethkes
amended their complaint to add Larry Sanger as a party defendant, they filed an
amended complaint against D & B’s liability insurer, United States Fidelity and Guaranty
Company (USF&G), claiming that USF&G owed coverage for Chris Sanger’s
negligence because Chris was employed by D & B at the time of the accident.
III. OSTENSIBLE AGENCY.
Appellants argue in the alternative that Larry Sanger could be held vicariously
liable to the Roethkes because Chris Sanger was Larry Sanger’s “ostensible agent.”
The leading and most recent Kentucky case on the doctrine of ostensible agency is
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Paintsville Hospital Co. v. Rose, Ky., 683 S.W.2d
255 (1985). There, the plaintiffs
decedent was found unconscious on the street and taken to a hospital where his
condition was allegedly misdiagnosed by a private, “on call” physician who, though not
an employee of the hospital, was held to have been an “ostensible agent” of the
hospital at the time of the misdiagnosis. Appellants posit that since the plaintiffs
decedent in Paintsville Hospital was unconscious during the diagnosis, he could not
have relied on the ostensible agency relationship; m, reliance is not an element of
ostensible agency. However, in Paintsville Hospital, we adopted the definition of
“ostensible agent” set forth in Restatement (Second) of the Law of Aaency, § 267
(A.L.I. 1958):
One who represents that another is his servant or other agent and thereby
causes a third person iustifiablv to relv upon the care or skill of such
apparent agent is subject to liability to the third person for harm caused by
the lack of care or skill of the one appearing to be a servant or other agent
as if he were such.
683 S.W.2d
at 257 (emphasis added). Although the definition specifically requires
justifiable reliance, Paintsville Hosoital went on to hold that reliance need not be proven
by express testimony but can be proven by circumstantial evidence absent evidence of
actual knowledae to the contrarv on the part of the oerson assertina ostensible aaency.
[Elvidence sufficient to invoke the doctrine has been inferred from
circumstances similar to those shown in the present case, absent
evidence that the oatient knew or should have known that the treating
phvsician was not a hospital emplovee when the treatment was performed
[not afterwards).
Id. at 256 (emphasis added). Thus, the absence of a requirement of express evidence
does not equate with an absence of the requirement of reliance -- and express
evidence of reliance is required when there is evidence, as here, that the person
claiming ostensible agency knew or should have known that no agency relationship
-18-
existed with respect to the job being performed. Thus, there is little difference between
the Restatement’s definition of “ostensible agent” and the UPA’s definition of “partner
by estoppel.” Both require reliance on the part of the party seeking to hold the principal
or partner vicariously liable. Since both Roethkes admitted that, when they hired Chris
Sanger to do the Gamble Brothers job, they did not do so in reliance on his relationship
with Larry Sanger, the doctrine of ostensible agency has no application to this case.
IV. JOINT ENTERPRISE.
Sometimes referred to as a joint adventure, a joint enterprise is “an informal
association of two or more persons, partaking of the nature of a partnership, usually,
but not always, limited to a single transaction in which the participants combine their
money, efforts, skill, and knowledge for gain, with each sharing in the expenses and
profits or losses.” Eubank v. Richardson, Ky., 353 S.W.2d 367, 369 (1962); see also
Drummy v. Stern, Ky., 269 S.W.2d 198, 199 (1954). In Huff v. Rosenberq, Ky., 496
S.W.2d 352 (1973) we enumerated the elements essential to a joint enterprise, viz:
“(1) an agreement, express or implied, among the members of the group; (2) a common
purpose to be carried out by the group; (3) a community of pecuniary interest in that
purpose among the members; and (4) an equal right to a voice in the direction of the
enterprise, which gives an equal right of control.” Id. at 355 (citing Restatement
(Second) of the Law of Torts, § 491, cmt. c (A.L.I. 1965). As to element number 3, it is
necessary to the relationship that there be a sharing of the profits and losses; though in
the absence of an express agreement, the sharing of losses may sometimes be implied
from an express agreement to share profits. Drummv v. Stern, supra, at 199.
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There was no express agreement that Larry Sanger would share in the profits of
the Gamble Brothers job and he did not do so. Nor did he have an equal right of control
with respect to the manner in which the job was performed. Thus, the theory of joint
enterprise has no application to this case.
Accordingly, the decision of the Court of Appeals is affirmed.
Graves, Johnstone and Keller, JJ., concur. Wintersheimer, J., dissents by
separate opinion with Lambert, C.J., and Stumbo, J., joining that dissenting opinion.
COUNSEL FOR APPELLANT:
Kenneth H. Baker
James Scroghan
Baker and Scroghan
1001 Kentucky Home Life Building
239 S. 5th Street
Louisville, KY 40202-3206
COUNSEL FOR APPELLEE:
W. R. Patterson, Jr.
Suite 408
310 West Liberty Street
Louisville, KY 40202-3015
Jennifer Jordan Hall
1838 Rutherford Avenue
Louisville, KY 40205
-2o-
RENDERED: DECEMBER 20,200l
TO BE PUBLISHED
2000-SC-0202-DG
APPELLANTS
STEPHAN F. ROETHKE; KAREN M. ROETHKE;
KAELA ROETHKE AND STEPHANIE ROETHKE
ON REVIEW FROM COURT OF APPEALS
97-CA-2954-MR AND 97-CA-2977-MR
JEFFERSON CIRCUIT COURT NO. 93-Cl-6373
V.
APPELLEE
LARRY SANGER
DISSENTING OPINION BY JUSTICE WINTERSHEIMER
I must respectfully dissent from the majority opinion because there was sufficient
evidence under the law of Kentucky to impose vicarious liability. The learned legal
essay provided in the majority opinion has only one flaw. It is in error. I respectfully
differ with the analysis of the partnership question. The opinion goes far beyond the
issue presented and is largely concerned with issues about the Uniform Partnership Act
which were not briefed or orally argued. A reviewing court should not redefine the
issues nor substitute its view for that of the trial judge or jury unless the result is clearly
erroneous. Cf. Bierman v. Klapheke, Ky., 967 S.W.2d
16 (1998).
The father
and son used the same business name, address and telephone
number; the name painted on the side of each crane was the same; the bills made no
differentiation between the two businesses; the father took a business depreciation for
both cranes on his income tax. The father in effect ran the business and the first check
for this particular job, although payable to the son, was deposited in the bank account of
the father. Surely this was sufficient evidence of a partnership, ostensible agency, or
joint enterprise to sustain the jury verdict.
The trial judge declined to enter a directed verdict for either party and instructed
the jury that the father could only be held liable for the negligence of the son if the jury
believed they were engaged in a partnership or implied partnership and the son was
engaged in the business of the partnership when the accident occurred. The terms of
the instructions were defined as follows: Two people are engaged in a partnership
when they agree to share the profits and losses of a business carried out by them and a
partnership is implied where two people voluntarily hold themselves out to the public as
being in business together.
The jury found the existence of a partnership and awarded damages. The Court
of Appeals reversed stating that there was insufficient evidence to impose vicarious
liability on the father.
Larry Sanger did not file a cross-motion for discretionary review and thus only
those issues decided by the Court of Appeals should be addressed by this Court.
Gailor v. Alsabi, Ky., 990 S.W.2d 597 (1999). The Roethkes did file a cross-appeal with
the Court of Appeals, arguing that the trial judge erred in denying their motion for a
directed verdict on the basis of ostensible agency. The Court of Appeals rejected the
Roethke argument regarding ostensible agency.
-2-
The Court of Appeals and the majority of this Court have improperly substituted
its judgment for that of the jury. A reviewing court cannot substitute its version of the
jury verdict for that of a duly impaneled jury unless the failure to grant a directed verdict
was clearly erroneous or the verdict was flagrantly against the evidence so as to
indicate it was reached as a result of passion or prejudice. Cf. Bierman, supra. The
reviewing court must respect the opinion of the trial judge who heard the evidence
because the trial judge is in the best position to determine whether a jury can properly
consider the evidence. Bierman. Where there is conflicting evidence, it is the
responsibility of the jury to determine and resolve such conflicts as well as matters
affecting the credibility of witnesses. Bierman, citing Taylor v. Kennedy, Ky.App., 700
S.W.2d 415 (1985). The task of interpreting inferences to be drawn from the evidence is
uniquely and historically suited for juries. Cf. Horton v. Union Liaht. Heat and Power
co., Ky., 690 S.W.2d 382 (1985).
As a result of the evidence presented, the jurors upon proper instruction found
Larry Sanger vicariously liable under principles of implied partnership. The Court of
Appeals and the majority of this Court have substituted its own opinion as to the
evidence and the legal conclusions in this case, thereby usurping the province of the
jury.
A business may be conducted by two or more persons in a fashion that will
constitute an implied partnership. Crider v. Providence Coal Minina Co., 242 Ky., 514,
46 S.W.2d 1072 (1932); Graft v. Woodruff, 244 Ky. 557,51 S.W.2d 908 (1932).
The intent of the parties to form a partnership may be implied and it need not be
expressed in writing or orally. The legal effects of their relation follow whether or not the
-3-
parties foresee and intend them, and it is immaterial that the parties do not realize that
they are partners. See 59A Am.Jur. 2d Partnership §I52 (1987).
“In the presence of an intent to do those things which constitute a partnership,
the parties will be considered partners even though they intend to avoid the liability
attaching to partners, or expressly stipulate in their agreement that they are not
partners.” Id. at § 153. In addition, ” . . . an agreement which attempts to carry out a
joint venture for the mutual profit of the adventurers while evading the responsibility for
losses, may be enforced and construed as a partnership.” rd.
In view of the extensive argument about the status of a joint venture and the
lengthy discussion by the Court of Appeals which ultimately concluded that there was
insufficient evidence to support such a theory, I believe it is necessary to explain my
position on the subject. Generally, a joint venture is described as a business
arrangement intended to carry out a single venture for profit. 46 Am.Jur.2d Joint
Ventures 5 1 (1994). Here, Larry and Chris Sanger were in business together for a
number of years. Although it has been observed that courts have not set out any
certain definition of what constitutes a joint venture, nor have they established a very
fixed or certain boundary of the concept, contenting themselves in determining whether
the facts of a particular case constitute the relationship of joint venture. See Kahle v.
Turner, 420 N.E.2d 127 (Ohio CtApp. 1979). See 46 Am.Jur.2d Joint Ventures
§1(1994).
It is further observed that the use of a joint venture has become more common
as a means of providing the great concentration of economic resources knowledge and
skill to accomplish large-scale construction projects such as public buildings, bridges,
tunnels, super highways, power dams, canals, seaways and power projects. u. at $2.
-4-
In any event, joint ventures are generally governed by the same rules as partnerships.
ld. at 53. The trend in the law has been to blur the distinction between a partnership and
a joint venture. Id. As a result, I am persuaded that the liability for torts of parties to a
joint venture agreement is governed by the law applicable to partnerships in this case.
Id. The business relationship of a partnership can be distinguished from a joint venture
because the joint venture is a specific undertaking for profit as opposed to a general
ongoing business. jd. at §14. The distinction between partnership and the joint venture
is highly fact intensive. Thus, it is a proper consideration for a jury to determine the
specific facts of a particular case.
An action for negligence may lie between joint venturers when the negligence
results in injury to a person seeking to recover damages. Duffy v. Piazza Constr., Inc.,
815 P.2d 267 (Wash. Ct.App 1991).
Each party to a joint venture is jointly and severally liable for the tortious acts of
the other committed within the scope of the business of the venture. The individual
parties are liable for injuries to third parties for injuries based on their mutual
undertaking. As in the case of partnerships, the nature of a joint venture is such that
any negligence on the part of one party may be imputed to the other. See 46 Am.Jur.2d
Joint Ventures 542 (1994). In this case, it has no significant value to seek refuge in a
joint venture theory. The outcome should be the same.
I would note that acts are interpreted in the light of ordinary human experience.
If the principal puts one into, or knowingly permits him to occupy, a position in which,
according to the ordinary experience and habits of mankind, it is usual for the occupant
to have authority of a particular kind, anyone having occasion to deal with one in the
position is justified in inferring that the person in question possesses such authority
-5
unless the contrary is then made known. Restatement of Law of Agency §49 Comment
b (1958); See also Williams v. StClaire Medical Center, Ky.App., 657 S.W.2d 590
(1983).
In this case the instructions given by the trial court were clear and easily
understood by the jury. There was sufficient evidence to indicate that Larry and Chris
Sanger had entered into a common business arrangement for their mutual benefit.
There was evidence regarding the close relationship between the father and son in the
business.
The enumerated requirements of Huff v. Rosenberg, Ky., 496 S.W.2d 352
(1993) are in conflict with a number of other Kentucky cases that hold that a joint
venture exists when persons embark upon a common enterprise for their mutual benefit.
Lapoas v. Barker, Ky., 375 S.W.2d 248 (1963).
Rosenberq, supra, involves the
vicarious liability for negligent operation of an automobile owned by the parents but
operated by the son. Clearly, this is a nonbusiness operation and does not control the
business situation presented here. The ongoing business relationship demonstrated by
the Sangers was a common business enterprise for their mutual profit. The jury
recognized that factual situation and based their verdict on it. There was no error.
Lambert C.J., and Stumbo, J., join this dissent.
-6-
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